Bank Of England Could Cut Rates 'More Aggressively', Says Bailey
October 03 2024 - 4:10AM
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The Bank of England could move a "bit more aggressively" on
interest rate cuts, Governor Andrew Bailey said in an interview
with The Guardian newspaper, published online on Thursday, causing
a steep fall in the pound to a near three-week low.
The BoE had reduced its benchmark rate by a quarter-point in
August, which was the first reduction since March 2020. In a tight
5-4 vote, the bank had cut the rate to 5.00 from a 16-year high
level.
UK inflation has retreated from its highs and is currently at
2.2 percent, slightly above the 2 percent target. More favorable
development on the inflation front could make the bank become "a
bit more activist" in its rate-cutting stance, Bailey said.
He noted that the cost of living crisis has not been as
persistent as the bank had estimated it might be.
Shortly after the interview was published, the pound declined
sharply against the dollar and the euro as markets were expecting
the BoE to lower interest rates gradually.
Bailey also said that the UK central bank is closely monitoring
the developments in the Middle East, adding that geopolitical
tensions are "very serious". The worsening of the crisis could
destabilize oil prices, he noted.
"From the point of view of monetary policy, it's a big help we
haven't had to deal with a big increase in the oil price," the BoE
governor said.
Referring to the past experience, especially that of the 1970s,
Bailey said central banks are watching the developments "extremely
closely" to see the impact of the latest news and there is a strong
commitment to keep the market stable.
"There's also recognition there's a point beyond which that
control could break down if things got really bad," Bailey said.
"You have to continuously watch this thing, because it could go
wrong," he warned.
Regarding economic growth, the BoE Chief said "I think the
economy has come through the shocks of the last five years better
than many of us feared. So there's a base there to develop."
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